this. people first, then money, then things. now you stay safe. bye-bye. this is "options action." tonight, liftoff. we'll tell you why today's bounce could be the start of a vicious year-end rally for stocks. plus, think this is wild? wait until you see just how much money options traders made on gopro this week. and we'll show you how you can do it too. and follow the money. >> x marks the spot. >> because some serious traders are making massive bets on a little-watched name. we'll tell you what it is and how you can profit. the action begins right now. well, leiv from the nasdaq market site, i'm melissa lee, these are the traders here in

times square. and tonight, a call to action, because energy stocks have gotten pummeled, but one of our traders has a very bold call to make. dan, surprise, surprise, you're getting bullish on energy. >> think about the week we had, across the globe in risk assets, there was a ton of volatility here. when you think about what oil has done and the energy sector here in the u.s. has done, you know, the xle, the energy select etf, which two stocks, exxon and chevron make up 30%, this thing can't get out of its own way. and crude, we started the week off with global growth concerns and so we have this decreased crude price. but you have a sector here that's gone from one of the best performing in the beginning of the year to the worst performing. i don't think this is going to stay for too long. and bottom line, i think these stocks are cheap here and i think it sets up for a contrarian bounce over the next one to two months. >> one of the reasons that oil

has been going down and prices, because the dollar has been strengthening. it's not just an issue of weakness abroad. one of the things, also, is that we are, thanks to the lower gas prices, starting to see increased demand for cars that actually consume more fuel. this is actually a good sign for most of the economy. it's certainly a good sign for the automakers, and it's also a good sign for domestic gasoline demand. so we actually made a bullish bet on this thing a little while ago, that didn't work out so hot. one of the things to remember about commodities, when these thing roll over, it's very easy to reach out and grab that falling knife, but the prices get more depressed and be depressed for a relatively long period of time. i'm not sure where the support is in crude, but there are some economic reasons domestically that could cause some increase in demand. >> do you want to believe that crude has essentially, i don't want to say bottomed, but stabilized at this point, because we have seen a huge decline in crude oil. >> it seems like the consensus was that we were going to see $80-some crude here, and we got

there. the consensus dude got it right for a while. and you bring up a great point about the dollar. the dollar has overshot many people's short-term expectations. if you think that that would likely temper the dollar gain against other currencies, then a bullish view near term could make sense. and this is an options trading show. one of the things that's really interesting about the xle, like i said, the top five holdings make up 40% of the waiting here. you wouldn't expect the etf of low-vol stocks to trade at a higher volatility. the prices are higher than a lot of its kpoecomponents. it's gone from 52-week lows in a month to 52-week highs. to me, that sets up for an interesting defined risk option trade. >> why would that be? why would that happen, mike? >> why would you see this kind of a spike? >> why would the etf's volatility be higher than its components' volatility? >> it would not be higher than a couple of them. chevron and exxon, i would

expect them to be lower. but xle does include a number of more speculative types of names, like drillers, for example, like the oil service index. granted, they don't represent as large a percentage of it, but these things aren't as correlated as you might think. there are other constituents that are volatile and they are not as coordinated as you would think they would be. >> so you're targeting exxon in your trade? >> actually looking at the xle. i want to focus on those two big names, exxon and chevron, and this is one way to do it. when the etf was trading at 88.30 today, i wanted to make a defined risk bet in the near-term. i want to plan for two things, a move up, and a vol crush as the etf moves up. so xle was 88.30 today, i bought the november 87.92, 97 put

butterfly. i bought one of the november 87 calls for 360. that is in the money. i sold two of the november 90 calls for $2.30 and bought one of november 97 calls for 20 cents. that costs me $1.50. that is my max risk. my max gain is $3.50 if the short goes to my short strike. and i'm basically low 87 and above 97, i lose that $1.50. i like the chance for this thing to have a slow, gradual move higher, vol to come in, and i don't want even need a mad bump to make money on this trade. >> when options volumes are evaluated, that's when you want to take a look at strategies where you get to sell more options. that's what he's looking to do here. and it's interesting, also, the strike that he decided to cover, people who have been watching xle will remember back in mid-august, xle was trading around 96 bucks. so between now and november expiration, give yourself a little bit of leeway and make sure you're protecting yourself. this thing really can move. and the commodities, lately,

whether they're going up or down, have been going in one direction. >> i want to make one final point, options trading show here. we buy puts, buy calls, sell them, when you look t a butterfly, it's not as complicated. >> buy the wings, sell the guts. >> that's exactly right. but you'll do it on your online broker, they have a setting to do it and you can evaluate the trade. don't be too scared by this. and it will lay out the payout. it's a pretty simple structure when you think about it that way. >> let's move on to a stock we don't talk too much about, and that would be tax corporation giant, h&r block. we started to see massive call volume in this stock. six times the weekly action volume traded. and the stock has followed suit and traded higher. what was behind this unusual activity and how high could this thing go? so mike khouw, aka speedy gonzalez went over to the plaza and is there to break it down. >> the activity really began to pick up on tuesday, when we saw some really big call spreads

trading. it looked like somebody was rolling out of a long october 29 call position into the november 32s. and normally that would be interesting on a day when you don't see that much activity in this name typically, as far as options are concerned. but that day got followed up on wednesday by a big buy of the january 32 calls, about 12,500 of those things traded on that day. then yesterday, again, another 10,000 bought, january 32 calls. and today, another 15,000 bourgt. over the course of this week, this is the activity, the interest in call open interest in h&r block, and this week, basically shot right up. over 100,000 contracts traded overall. this is pretty interesting, because this is a name that we probably don't get all that excited about, tax preparation stocks, but actually, this one has been pretty volatile lately. it's trading relatively inexpensively at about 15 times earnings. and the nice things about taxes, they're inevitable, which means tax preparation services are also going to be inevitable. and if we take a look right here, 32 bucks is essentially

where we were seeing all of that activity, out to january expiration. one other thing, next year could be very interesting for this stock. the affordable care act actually has implications, because people who don't get out there could pay a penalty. and that's going to be a part of their tax returns. the more complicated your tax return gets, the more likely you are to seek some help getting it done. >> dan, h&r block? >> when you look at that call activity, the explosion of open interest, and that's important that the open interest increased in the calls. you have to think about the reasons for that. and you don't know. this stock -- or this company has 20% of their market cap in cash. is this an lbo candidate? is that some of the stuff that's going on? that's been a pretty hot thing. activists have been getting involved in stocks where they think they can move the needle and unlock some shareholder value. i don't know the company very well. mike laid out a good reason going forward. but don't forget, activists are on the prowl right now. >> this is a perfect candidate for an options trade, mike.

>> absolutely perfect. and this looked like some pretty well-educated institutional bets to the upside. the january 32 calls for trading for about a buck and 20 cents. that seems like a relatively inexpensive way to make a bet, when you consider, this was a stock that rose 5.5% just from its lows yesterday to where it's trading today. so risking less than a third of the stock price to make a bullish bet on something that has moved more than that in just one day seems like an inexpensive way to make a bullish bet to me. >> would you do this trade, dan? >> i agree with mike, it's an inexpensive way to make a bullish bet. i don't believe in following unusual activity. i know on the network, we spend a lot of time talking about it. unless you know who's doing what for what reasons, i just don't buy it. this stock also went from 34 down to 30 over the last month and a half. i don't know why that happened either. so that doesn't make me want to sell it when it was down at 30. and just because i see a lot of call buying, i think you have to develop some sort of fundamental thesis and then have conviction -- >> the fact that the stock went down actually like that is

exactly the reason why calls are the right way to make a bullish bet here. not overly expensive. oppenheimer just reiterated their overweight. you pointed out that cash because they decided to get out of the banking business. there's some interesting catalysts coming up, incoming earnings. >> got a question? send us a tweet at options action, and everything options action, check out our website, optionsactions.cnbc.com. do check it out. here's what's coming up next. >> free your mind. >> because if you can, you might be able to profit from what could be one of the greatest year-end rallies of all time. plus, talk about crazy. not that crazy, you perot shares have had another wild week. you'll never believe where some are betting the stock will go next. that's when "options action" returns.

welcome back to "options action." let's talk about the markets. crazy week. dan, what worries you most? >> listen, to me, and i've been on this thing for a while here. i think the earnings growth we're going to see in q3 results are clearly a result of low interest rates where companies are using their cash to buy back stock and they're lending to do it. and i don't think that legitimate earnings growth, i think we feneed to see some revenues growth and there's too much headwinds overall, some of

these global growth concerns that i think will be persistent for the next couple of quarters. mike? >> global growth, certainly. i think a strengthening dollar for multi-nationals is going to be a challenge. rising rates would pressure equity prices. that's a concern. you know, so when i take a look at this, you know, skeptical, and then you add valuations that are probably a turn and a half above average. >> no surprise, mike and dan are bearish, but tom lee is one of wall street's biggest bulls, also the managing partner at fund strat global advisers, welcome to "options action," tom. good to see you. in a note you put out this morning, you said we're setting up for a big rally at the end of the year. why is that? what do you see. >> selling off in the first day of the quarter is actually a very bullish sign. you know, 92% of the time you rally from that point into the end of the year. second, there's a lot of fund managers trailing their benchmark, and it sets up for a pretty big beta chase. >> can we do that, though? because we've seen small caps

lag. the russell 2000 is in correction territory, a lot of people are saying midcaps could be in trouble as well. can we get that year-end rally if we have troubles in the smalls and mids? >> historically, the russell has underpumped the s&p by a thousand basis pointses over the past six months, that's actually a very bullish sign. that's the end of a correction, not the start of a new sell-off, but the end of a sell-off. it confirms we'll have a pretty big move in the s&p. >> before we had this little mini correction, we saw a declining breath among the large caps. so we'll be highlighting the declining breath on the smaller capsize, but the large caps, it's been a smaller amount of companies doing a lot of the heavy lifting to me, and the s&p really was not able to make a substantial run above 2000. so to me, i think with the qe ending next month, like why i'm skeptical about the continueuation of the rally, i don't see the revenue growth coupled with this global growth concern we're seeing, in europe

and in emerging markets. >> it's a fair on the. i think the market has been a little choppy, weak, gotten investors very nervous offer the past few weeks. but on the other hand, i think it's setting up for what will be a seasonally strong fourth quarter. now, i know earnings are going to be a big question mark. i think the key here is that u.s. investment spending is picking up. it's going to favor the domestic cyclicals, and you want to be focused on domestic cyclicals as you think about hikes anyway. >> my question would be, you were just alluding to the fact that the russell has been relatively weak compared to the other big names. and those, obviously, i'm not expecting to see a lot of managers selling their strong names going into the end of the year. but is your suggestion, then, though those underperformers, essentially the dogs of the russell, year-to-date, are the play to get into it and add some beta going into the end of the year? >> when we think of beta and what people will chase, one thing people will focus on is the gasoline dividend. you'll have lower dividend prices. that will boost growth in the

next since months. the other is, people do like groups that have been working, like it can and health care. but i wouldn't be surprised if you see the russell really get a nice lift. because you're right, it's oversold. i think the midcaps will look pretty good too. midcap managers are struggling more than small cap managers. >> tom, we'll leave it there. thanks for your time. tom lee, of fund strat global advisers. so, dan, let's get to your trade here. >> if you agree with him and think that we do see this beta chase in the year-end, but you do worry a little bit. we have a chart of the s&p 500, the 200-day moving average, the s&p has not been below it for two years. i think that will set up for q1 disappointment. the higher we go in q4, i think we give it back. remember late january, early february sell-off we had this year, after the s&p rose 30%, i think we set up to do that. and i think you want to use heightened index prices to set up for this trade. so today, when the s&p was 196.65, i looked at the december

quarterly, march quarterly, 190 put spread. that basically corresponds with that one 1,900 level in the s&p 500. and what i really want to do is if you agree with tom and you think the s&p will inch up, you want to sell the december 1.90 put at $3.40 and sell for $6.40. if you get to the year-end and the etf is above 190, you have financed half the purchase price of that longer dated put. and you'll look to do something with it to further finance it and maybe turn it into a vertical put spread. >> off number of holidays coming up. that probably is going to depress volatility. so i think that's a positive. the other thing is, that the names that have outperformed, i do not personally see anyone who's holding those things se selling into the end of the year. i'm more interested about the parts that have been underperforming and a little bit less convinced that people will step in and start buying those. coming up next, is a big dif ahead for gopro shares?

welcome back. well, the exhilarating gopro rally continues and after a scare on thursday, the stock is

up another 6% on the week, and that's very good news for our friend, mike, and here's why. on "options action," it's how we trade to the max. risk less so we can make more, and that's just what khouw and carter did. >> just ride the momentum. momentum is real. >> but just buying 100 shares of gopro, dude, i'm not that crazy, mike says. so to spend less and define his risk, mike instead bought the january 82.5 call for $6.70. a call gives you the right, but not the obligation to buy a stock at a given praise and time. so to make money, mike needs gopro shares to rise above that strike price by more than the cost of the trade, or above $89.20 by january expiration. but it gets even better, because if gopro shares do rise, that call will increase in value faster than the stock, meaning

more upside potential. dudes, it means more money in mike's pocket. >> excellent! >> and since the time of the trade, gopro shares have continued their epic rise, making mike and carter winners. ♪ dream weaver >> now mike and carter can't stop doing crazy stuff, but between jumping off buildings, flying down mountains, and deep sea swimming, guys, don't forget about the trade. because options actions' biggest fans still want to know the answer to one question. how can they make more cash. now, unfortunately, carter is out sick today, and we do all wish him a speedy recovery. we hope to see him back here soon. but in the meantime, mike, what are you doing with this trade? >> this was one of those trades that we talked about it when we put this thing on. you have to deep a close eye on it, because this is a really volatile stock. earlier this week, this stock became essentially impossible to borrow and at one point, hit almost $95.

i think what you can do is take the money and run on this one. because this is a great and very quick profit that we made here. at the worst case, you could take some of those profits, roll them up and out a little bit, but that's got to take some money off the table. >> what do you think about gopro, especially going into the holidays. they've got the new camera and everybody says it can be a gopro christmas. >> it's really binary around consumers. i look at the products and i have no interest in them and i never would. and i think the barriers to interest for someone like an apple or google or android are not very high. if you're assigning some sort of media valuation to it, i don't see it. and the hardware thing, remember those flip phones and flip cameras that cisco bought. i don't think these guys will be around in a few years, i think in some way, shape, or form. but i think it's too fertile a ground for the installed base like guys like apple to go after them. >> you would absolutely want to use options to be long the stock, especially the stock. you can definitely get in at a

better price. >> coming up on "mad money," the oil and gas prices getting slammed recently, cramer's talking to magnum hunter ceo at the top of the hour. coming up next, the final call from the options pits.

let's take a tweet here. marty writes, agree with the contrarian call on xle, but could be explosive move. why not just a risk reversal. risk vertical? >> i think that's a great idea. i swear when i was conceiving this trade, i was pricing up risk reversals, and it was very interesting to me. i wanted to do two things, not only did i want to make the directional bet, but i wanted to play for a decline in volatility. that in the money call fly achieves that goal. but to be very frank, on risk reversal, i did do a risk reversal on chevron today, using some of the similar inputs i used for the xle. >> what would you choose?

what's a better vehicle? >> interestingly, with oil prices where they are and the fact that ford has been beaten up, it's a little ticking a sideways turn here. but actually, i kind of like ford right here. because if prices do remain depressed, i think this can be good for the u.s. manufacturers, particularly with them coming out with their best-selling video, the new f-150, which they're teaming up with alcoa on. i think that's an interesting situation. general motors wi, i'm not quits enthusiastic. >> so you would prefer it to go to automakers? >> yeah. time for the final call. dan? >> i don't really think we're going to have this massive beta move in the s&p 500 and large caps, but if you are inclined to think we get a little bump back to 5,000 and hold there, but stormier clouds in the first quarter, i like that s&p, the s&p y put count that i laid out. >> mike? >> i also like calendars. i might be inclined to do one on the russell, iwm, which is actually the sector which has

been underperforming where greater volatility might be priced in. >> all right. looks like our time has expired. i'm melissa lee. for more options action, check out the website, optionsactions.cnbc.com. we'll see you back here next friday at 5:30. in the meantime, "mad money" starts right now. >> announcer: the following is a paid presentation for body beast, the fast, proven way to build muscle, shed fat, and sculpt your best body faster than you've ever thought possible, brought to you by beachbody. >> this is real, as real as it gets. we're gonna learn, we're gonna sweat, we're gonna have fun, and we're gonna see results. >> before body beast, i was just soft and chunky and -- and pudgy, and this is the "after" result. >> it's gonna be amazing. come on. you can do this! >> body beast has completely transformed my body. swimsuit season is here, and